PRESENT MONETARY PROBLEMS. 215 



12. Does the Kicardian reasoning in favor of the quantity theory 

 of prices hold in monetary systems where free coinage of the standard 

 money exists, and where other devices are used as media of exchange? 

 If mints are open, how can the coin differ in value from the bullion of 

 which it is made? 



It is safe to say that the thorough discussion of these points, and a 

 satisfactory disposal of them, will aid in the solution of the central 

 monetary problem, not only of the past, but of the present time. It 

 is one which can not be blinked. It arises at every step in popular 

 monetary discussions, and the economists have not given it necessary 

 attention. On the settlement of the theory of prices, of the value of 

 money, a host of minor questions, which have caused endless and fruit- 

 less differences of opinion, will disappear The solution of this matter 

 of theory is of the greatest practical import; it is as important to 

 practical monetary action as a theory of heat is to mechanics. There- 

 fore let us not be deterred from a struggle with a fundamental matter 

 of theory by any slighting and cheap sarcasm about the futility of 

 theoretical and abstract discussions. As well scoff at the mathematics 

 which lies behind physics and astronomy as theoretical. 



Nor will it be wise to minimize the differences between the old 

 and new points of view in tlie theory of prices. It may be said that 

 the quantity of money would have an influence on general prices in 

 any theory. True; but that does not touch the crucial point at issue. 

 The quantity theorists make the process of evaluation between goods 

 and ' money ' dependent on the actual offer of the medium of exchange 

 and goods for each other; an increase of transactions in goods is an 

 increased demand for money, resulting, unless the quantity of money is 

 increased, in falling prices. It is needless to say that the facts do not 

 agree with these statements. An inductive economist, who would be 

 unwilling to state any principle which had not been the outcome of a 

 study of concrete data, could never, under any possible circumstances, 

 have arrived at the quantity theory of money. In no case coming under 

 my observation has there ever been any correspondence between the 

 movement of general prices and the known facts as to the quantity of 

 circulation, or the money-work to be done. If I am wrong, it lies in 

 the power of induction to disprove my statement by the facts. In 

 truth, the quantity-theory was the product of the metaphysicians, and 

 not of the men of affairs; and it never has been in accord with the 

 data of inductive study, so far as I know. 



It is true that a great increase in the supply of gold would lower 

 its value, other things remaining the same; but the effect on general 

 prices would be a simple one, such as would be produced by any 

 cheapening of the standard, like a change to a depreciated paper 

 standard. But this change in the value of the standard is a radically 



